Justice Department begins criminal probe of Enron fall

Senate bank committee joins investigations of energy-trading firm

January 10, 2002|By Karen Hosler | Karen Hosler,SUN NATIONAL STAFF

WASHINGTON - A criminal investigation into the collapse of the Enron Corp. has been launched by the Justice Department to determine whether anyone should be prosecuted for financial maneuvers that cost employees and investors billions of dollars.

A department task force headed by the criminal division, made up of federal prosecutors in Houston, San Francisco, New York and several other cities, will look into the dealings of the Texas-based energy company, which has close ties to the Bush administration.

The Senate Banking Committee also announced yesterday that it would join the growing list of congressional committees that are investigating the circumstances surrounding Enron's demise.

Sen. Paul S. Sarbanes, the Maryland Democrat who is chairman of the Banking Committee, said he has scheduled a hearing for Feb. 12 at which all five living former chairmen of the Securities and Exchange Commission have been called to testify. The chairmen will be asked about the regulatory practices that failed to pick up warnings of Enron's catastrophic failure, which left its stockholders and employees with stock that was all but worthless.

"We want to take a thorough and careful look at all of the policies and practices that may have played a role in any of these events," Sarbanes said in an interview yesterday.

His announcement of the hearing came at the public urging of Sen. Jon Corzine, a New Jersey Democrat and former investment banker who serves on the committee. Six other House and Senate committees have launched investigations into Enron.

Corzine told The Hill newspaper in an article published yesterday that the Banking Committee's responsibility for oversight over the SEC "gives us a real reason" to explore the role of auditors in the Enron case.

Sarbanes said it had taken him a few days to settle on a date for his hearing that would accommodate the schedules of the five former SEC chairmen. But he said he also saw no reason to rush to convene an inquiry shortly after Enron filed for bankruptcy-law protection Dec. 2.

"There's nothing that needs to be done today," Sarbanes said. "I didn't want to go into this without being fully prepared."

Democrats have generally rushed enthusiastically to investigate the activities of Enron executives, who have strong ties to President Bush and other top administration officials. Enron's chairman, Kenneth L. Lay, has been a major Bush campaign donor and fund-raiser and was among the industry officials who helped Vice President Dick Cheney craft the administration's energy policy.

The chairman of the Senate Government Affairs Committee, Joseph I. Lieberman, a Connecticut Democrat, has scheduled a hearing for Jan. 24 on why government regulators missed the "red flags" at Enron. Lieberman promised to pursue the inquiry "wherever the search takes us."

Rep. Henry A. Waxman of California, the leading Democrat on the House Government Reform Committee, has raised questions about whether Enron officials gave the administration self-serving advice during the development of the energy legislation.

The House and Senate Commerce committees, as well as the House Education and Work Force Committee and the House Financial Services Committee, are holding separate investigations.

Sarbanes' inquiry has the potential to be awkward for Sen. Phil Gramm of Texas, the senior Republican on the committee, whose wife, Wendy Gramm, sits on Enron's board of directors and leads the board's audit committee.

Senator Gramm's activities on behalf of Enron could come under scrutiny in the thicket of investigations. The Hill reported yesterday that Gramm was a key advocate for a provision, added to a spending bill in 2000, that curtailed oversight of Enron's trading practices by regulators. A spokesman for Gramm denied the assertion.

Enron, once the nation's largest marketer of electricity and natural gas, filed for protection from creditors as investors sent its stock into a free-fall.

Robert Bennett, an Enron attorney, said the company was pleased by the prospect of a Justice Department investigation that would "bring light to the facts."

A likely focus of the Justice Department investigation will be whether fraud was involved in the corporation's heavy use of private partnerships that concealed Enron's debt.

With Enron's close ties to Republicans, Democrats see potential political advantage in investigating the company's collapse.

Sarbanes has called on the General Accounting Office, the investigative arm of Congress, to study the policy of using company stock as the chief vehicle for employer-paid pension benefits.

The Associated Press contributed to this article.

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